Metro Vancouver is enjoying such a surge in new warehouse demand that developers are taking risks building ever-larger buildings without first finding tenants.
Approximately 1.4 million square feet of industrial space has been built in the past six months, and Avison Young senior industrial associate Michael Farrell told Business in Vancouver that another 1.8 million square feet is under construction.
He added that in some years, such as 2010, there was no warehouse construction.
Unlike in most of North America, where speculative construction has always been common, Vancouver industrial developers have historically been a conservative bunch, preferring the build-to-suit business model, where the tenant is known in advance, Farrell said.
"Typically the largest buildings in our marketplace have gone up to 400,000 square feet, and they have all been on a build-to-suit basis," he said. "Now, you see the [Dayhu Group of Companies'] Boundary Bay Industrial Park, which has two 450,000-square-foot buildings that will both be completed on a speculative basis."
Other speculative projects include Grosvenor's 163,000-square-foot Millennium VI on Annacis Island, Brunswick Holdings' 300,000-square-foot East Richmond Distribution Centre and Beedie Industrial's plan to build a 245,000-square-foot warehouse at its Queensborough Logistics Centre on Port Metro Vancouver (PMV) land in New Westminster.
"Larger users are looking for Tier 1, Class A distribution space with modern high ceilings and excellent loading facilities," Beedie president Todd Yuen told BIV. "They don't have time to wait for a build-to-suit [building]."
Longtime industrial brokers have never seen the Vancouver market so frothy.
"I had the busiest summer ever this year, and I've been in the business 28 years," CBRE senior vice-president Gurch Ollek told BIV. "The deals I did were across the board from 10,000 square feet to 150,000 square feet."
Ollek's biggest recent transaction was leasing 150,000 square feet at the East Richmond Distribution Centre to Nippon Express Canada. Four companies are interested in that centre's remaining 150,000 square feet, and Ollek expects to close a transaction by the end of the year.
He believes that the BC Liberal Party's May election win is responsible for much industrial developer and tenant confidence.
"Prior to the election, people were ... wondering what would happen," he said. "Talk was that the NDP would win a majority, so people weren't making the moves that they wanted to make."
Rising imports also help.
Bulk cargo shipments through PMV rose 8.7% in the year ended June 30 compared with the prior year. Containerized tonnage rose 3.9% during the same time.
"Two years ago we put Samsung in a 150,000-square-foot building," Ollek said. "We just helped them expand into another 65,000 square feet in the same area, so that's a great example of consumers buying more Samsung products."
Avison Young statistics don't include major new projects that continue to be announced.
For example, PMV gave approval on November 6 for Pure Industrial Real Estate Trust's (PIRET) (TSX:AAR.UN) plan to partner with Hopewell Development and build a 151,000-square-foot expansion to Containerworld's current 484,000-square-foot warehouse in Richmond.
"It's significant for us because this is our first major development," PIRET CEO Kevan Gorrie told BIV.
Previously, PIRET's only tactic for acquiring warehouses was to buy existing buildings.
"It's also important for us to demonstrate our capability to grow our portfolio without coming to the market and raising equity," Gorrie added. "So this shows that we can do this with cash on hand."
Gorrie steered Vancouver-based PIRET's $184.1 million bought-deal financing in May, which enabled the real estate investment trust to buy 59 industrial properties in Toronto. He then watched PIRET's unit price slide.
